Glimpse Group Inc

NOTE 1. DESCRIPTION OF BUSINESS

The Glimpse Group, Inc. (“Glimpse”, the “Company”) is an Immersive technology company, providing Virtual Reality (“VR”), Augmented Reality(“AR”) and Spatial Computing software and services. Glimpse’s operating entities are located in the United States and Turkey. The Company was incorporated in the State of Nevada in June 2016.

Glimpse’s unique business model builds scale and a robust ecosystem, while simultaneously providing investors an opportunity to invest directly into this emerging industry via a diversified platform.

The Company completed an initial public offering (“IPO”) of its common stock on the Nasdaq Capital Market Exchange on July 1, 2021, under the ticker VRAR.

NOTE 2. GOING CONCERN

At each reporting period, the Company evaluates whether there are conditions or events that raise doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company’s evaluation entails analyzing expectations for the Company’s cash needs and comparing those needs to the current cash and cash equivalent balances. The Company is required to make certain additional disclosures if it concludes substantial doubt exists and it is not alleviated by the Company’s plans or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern.

The Company has incurred recurring losses since its inception, including a net loss of approximately $6.39 million for the year ended June 30, 2024. In addition, as of June 30, 2024, the Company had an accumulated deficit of $63.0 million. While the Company’s cash flow has improved in recent months, its cash and cash equivalents as of June 30, 2024 may not be sufficient to fund operations and other commitments for at least the next twelve months from the date of issuance of these consolidated financial statements. Accordingly, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of these consolidated financial statements.

Outside of potential revenue growth generated by the Company, in order to restore the going concern the Company may take actions which could include but are not limited to: further cost reductions, equity or debt financings and restructuring of potential future cash contingent acquisition liabilities. There is no assurance that these actions will be taken or be successful if pursued.

The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described.

Potential liquidity resources

Potential liquidity resources may include the further sale of common stock pursuant to the unused portion of the $100 million S-3 registration statement filed with the SEC on October 28, 2022. Such financing may not be available on terms favorable to the Company, or at all.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation

The accompanying consolidated financial statements include the balances of Glimpse and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Accounting Estimates

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the accompanying consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

The principal estimates relate to the valuation of allowance for doubtful accounts, stock options, warrants, revenue recognition, allocation of the purchase price of assets relating to business combinations, calculation of contingent consideration for acquisitions, fair value of intangible assets and goodwill impairment.

Cash and Cash Equivalents, Restricted Cash

Cash and equivalents represent cash and short-term, highly liquid investments, that are both readily convertible to known amounts of cash and so near their maturity they present insignificant risk of changes in value because of changes in interest rates, with maturities three months or less at the date of purchase.

Restricted cash represented $2.0 million escrowed cash related to the Sector 5 Digital, LLC (“S5D”) acquisition and was fully disbursed during the year ended June 30, 2023 (see Note 7). There was no restricted cash at June 30, 2024 and 2023.

Accounts Receivable

Accounts receivable consists primarily of amounts due from customers under normal trade terms. We recognize accounts receivable at the amount we expect to collect from our customers. We provide an allowance for credit losses to reflect the estimated amount of accounts receivable that may not be collectible.****

We determine the allowance for credit losses through a combination of specific identification of troubled accounts, historical loss experience, industry trends, current market conditions, and customer creditworthiness.The allowance for credit losses is adjusted periodically to reflect changes in these factors.

Our accounting policy for credit losses is in accordance with Accounting Standards Codification (ASC) 310, Receivables.** **

As of June 30, 2024 and 2023 no allowance for doubtful accounts was recorded as all amounts were considered collectible.

Customer Concentration and Credit Risk

Two customers accounted for approximately 38% (23% and 15%, respectively) of the Company’s total gross revenues during the year ended June 30, 2024. The same two customers accounted for approximately 47% (26% and 21%, respectively) of the Company’s total gross revenues during the year ended June 30, 2023.

Three customers accounted for approximately 49% (21%,16% and 12%, respectively) of the Company’s accounts receivable at June 30, 2024. One of the same customers and a different customer accounted for approximately 43% (29% and 14%, respectively) of the Company’s accounts receivable at June 30, 2023.

The Company maintains cash in accounts that, at times, may be in excess of the Federal Deposit Insurance Corporation limit. The Company has not experienced any losses on such accounts.

Business Combinations

The results of a business acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition. Acquisition accounting results in assets and liabilities of an acquired business generally being recorded at their estimated fair values as of the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.

The Company performs valuations of assets acquired and liabilities assumed and allocates the purchase price to its respective assets and liabilities. Determining the fair value of assets acquired and liabilities assumed may require management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenues, costs and cash flows. Estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is typically one year from the acquisition date, if new information is obtained about facts and circumstances that existed as of the acquisition date, changes in the estimated values of the net assets recorded may change the amount of the purchase price allocated to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded in the consolidated statement of operations. At times, the Company engages the assistance of valuation specialists in determining fair values of assets acquired and liabilities assumed in a business combination.

Intangible assets (other than Goodwill)

Intangible assets include acquired customer relationships and developed technology purchased. Intangible assets are stated at allocated cost less accumulated amortization and less impairments. Amortization is computed using the straight-line method over the estimated useful lives of the related assets. The Company reviews intangibles, being amortized, for impairment when current events indicate that the fair value may be less than the carrying value.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition method. Goodwill is not amortized but instead is tested at least annually for impairment, or more frequently when events or changes in circumstances indicate that goodwill might be impaired.

Impairment of Long-Lived Assets

The Company reviews long-lived assets to be held and used, other than goodwill, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cashflows directly associated with the asset are compared with the asset’s carrying amount. If the estimated future cash flows from the use of the asset are less than the carrying value, an impairment charge would be recorded to write down the asset to its estimated fair value.

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy, which is based on three levels of inputs, the first two of which are considered observable and the last unobservable, that may be used to measure fair value, is as follows:

● Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities;

● Level 2 — inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

● Level 3 — unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company classifies its cash equivalents within Level 1 of the fair value hierarchy on the basis of valuations based on quoted prices for the specific securities in an active market.

The Company’s contingent consideration is categorized as Level 3 within the fair value hierarchy. Contingent consideration is recorded within contingent consideration, current, and contingent consideration, non-current, in the Company’s consolidated balance sheets as of June 30, 2024 and 2023. Contingent consideration has been recorded at its fair values using unobservable inputs and have included using the Monte Carlo simulation option pricing framework, incorporating contractual terms and assumptions regarding financial forecasts, discount rates, and volatility of forecasted revenue. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with, at times, the assistance of a third-party valuation specialist.

The Company’s other financial instruments consist primarily of accounts receivable, accounts payable and other liabilities, and approximate fair value due to the short-term nature of these instruments.

Equipment

Equipment, comprised of computer hardware, is stated at cost less accumulated depreciation. It is depreciated using the straight-line method over the estimated useful life of the asset, which is primarily 3 years. Depreciation expense for the years ended June 30, 2024 and 2023 was approximately $0.12 million and $0.14 million, respectively.

Revenue Recognition

Nature of Revenues

The Company reports its revenues in two categories:

The Company applies the following steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

Revenue is recognized when the Company satisfies its performance obligation under the contract by transferring the promised product to its customer or service is performed and collection is reasonably assured. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A portion of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. Other contracts can include various services and products which are at times capable of being distinct, and therefore may be accounted for as separate performance obligations.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales taxes and other taxes are excluded from revenues.

For distinct performance obligations recognized at a point in time, any unrecognized portion of revenue and any corresponding unrecognized expenses are presented as deferred revenue/contract liability and deferred costs/contract asset, respectively, in the accompanying consolidated balance sheets. Contract assets include cash and equity based payroll costs, and may include payments to consultants and vendors.

For distinct performance obligations recognized over time, the Company records a contract asset (costs in excess of billings) when revenue is recognized prior to invoicing, or a contract liability (billings in excess of costs) when revenue is recognized subsequent to invoicing.

Significant Judgments

The Company’s contracts with customers may include promises to transfer multiple products/services. Determining whether products/services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Further, judgment may be required to determine the standalone selling price for each distinct performance obligation.

Disaggregation of Revenue

The Company generated revenue for the years ended June 30, 2024 and 2023 by delivering: (i) Software Services, consisting primarily of VR/AR/Spatial Computing software projects, solutions and consulting services, and (ii) Software Licenses & SaaS, consisting primarily of VR, AR and Spatial Computing software licenses or SaaS. The Company currently generates its revenues primarily from customers in the United States.

Revenue for a significant portion of Software Services projects and solutions (projects whereby, the development of the project leads to an identifiable asset with an alternative use to the Company) is recognized at the point of time in which the customer obtains control of the project, customer accepts delivery and confirms completion of the project. Certain other Software Services revenues are custom project solutions (projects whereby, the development of the custom project leads to an identifiable asset with no alternative use to the Company, and, in which, the Company also has an enforceable right to payment under the contract) and are therefore recognized based on the percentage of completion using an input model with a master budget. The budget is reviewed periodically and percentage of completion adjusted accordingly.

Revenue for Software Services consulting services and website maintenance is recognized when the Company performs the services, typically on a monthly retainer basis.

Revenue for Software Licenses is recognized at the point of time in which the Company delivers the software and customer accepts delivery. Software Licenses often include third party components that are a fully integrated part of the Software License stack and are therefore considered as one deliverable and performance obligation. If there are significant contractually stated ongoing service obligations to be performed during the term of the Software License or SaaS contract, then revenues are recognized ratably over the term of the contract.

Timing of Revenue

The timing of revenue recognition for the years ended June 30, 2024 and 2023 was as follows:

Remaining Performance Obligations

Timing of revenue recognition may differ from the timing of invoicing to customers. The Company generally records a receivable/contract asset when revenue is recognized prior to invoicing, or deferred revenue/contract liability when revenue is recognized subsequent to invoicing.

For certain Software Services project contracts the Company invoices customers after the project has been delivered and accepted by the customer. Software Service project contracts typically consist of designing and programming software for the customer. In most cases, there is only one distinct performance obligation, and revenue is recognized upon completion, delivery and customer acceptance. Contracts may include multiple distinct projects that can each be implemented and operated independently of subsequent projects in the contract. In such cases, the Company accounts for these projects as separate distinct performance obligations and recognizes revenue upon the completion of each project or obligation, its delivery and customer acceptance.

For contracts recognized over time, contract liabilities include billings invoiced for software projects for which the contract’s performance obligations are not complete.

For certain other Software Services project contracts, the Company invoices customers for a substantial portion of the project upon entering into the contract due to their custom nature and revenue is recognized based upon percentage of completion. Revenue recognized subsequent to invoicing is recorded as a deferred revenue/contract liability (billings in excess of cost) and revenue recognized prior to invoicing is recorded as a deferred cost/contract asset (cost in excess of billings).

For Software Services consulting or retainer contracts, the Company generally invoices customers monthly at the beginning of each month in advance for services to be performed in the following month. The sole performance obligation is satisfied when the services are performed. Software Services consulting or retainer contracts typically consist of ongoing support for a customer’s software or specified business practices.

For Software License contracts, the Company generally invoices customers when the software has been delivered to and accepted by the customer, which is also when the performance obligation is satisfied. For SaaS contracts, the Company generally invoices customers in advance at the beginning of the service term.

For multi-period Software License contracts, the Company generally invoices customers annually at the beginning of each annual coverage period. Software License contracts consist of providing clients with software designed by the Company. For Software License contracts, there are generally no ongoing support obligations unless specified in the contract (becoming a Software Service).

Unfulfilled performance obligations represent amounts expected to be earned by the Company on executed contracts. As of June 30, 2024 and 2023, the Company had approximately $5.95 million and $2.16 million, respectively, in unfulfilled performance obligations.

The Company recognizes stock-based compensation expense related to grants to employees or service providers based on grant date fair values of common stock or the stock options, which are amortized over the requisite period, as well as forfeitures as they occur.

The Company values the options using the Black-Scholes Merton (“Black Scholes”) method utilizing various inputs such as expected term, expected volatility and the risk-free rate. The expected term reflects the application of the simplified method, which is the weighted average of the contractual term of the grant and the vesting period for each tranche. Expected volatility is based upon historical volatility for a rolling previous year’s trading days of the Company’s common stock. The risk-free rate is based on the implied yield of U.S. Treasury notes as of the grant date with a remaining term approximately equal to the expected life of the award.

Research and Development Costs

Research and development expenses are expensed as incurred, and include payroll, employee benefits and stock-based compensation expense. Research and development expenses also include third-party development and programming costs. Given the emerging industry and uncertain market environment the Company operates in, research and development costs are not capitalized.

Foreign Currency

Assets and liabilities recorded in foreign currency are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process, which are deminimis, are recorded in general and administrative expenses on the consolidated statement of operations.

Income Taxes

The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company establishes a valuation allowance if it is more likely than not that the deferred tax assets will not be recovered based on an evaluation of objective verifiable evidence. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefit that is greater than 50% likely of being realized. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit.

The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740,Income Taxes, or ASC 740, also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are uncertain tax positions requiring recognition of $38,588 uncertain tax liabilities in the Company’s consolidated financial statements. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in material changes to its financial position.

The Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense. There were no amounts accrued for penalties or interest for the years ended June 30, 2024 and 2023. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

Earnings Per Share

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential shares of common stock outstanding during the period using the treasury stock method. Dilutive potential common shares include the issuance of potential shares of common stock for outstanding stock options, warrants and convertible debt.

Reclassifications

Certain accounts in the prior period financial statements have been reclassified for comparative purposes to conform with the presentation in the current period financial statements.

Recently Adopted Accounting Pronouncements

In September 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326) which requires measurement and recognition of expected credit losses for financial assets held. The Company adopted this guidance on July 1, 2023 and the impact of the adoption was not material to our consolidated financial statements as credit losses are not expected to be significant based on historical collection trends, the financial condition of payment partners, and external market factors.

In December 2019, the FASB issued ASU No. 2019-12 to simplify the accounting in Accounting Standards Codification (“ASC”) 740, Income Taxes. This standard removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. The Company adopted this guidance on July 1, 2023 using the prospective transition method. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for the Company’s annual periods beginning July 1, 2025. The Company is currently evaluating the ASU to determine its impact on the Company’s disclosures.

NOTE 4. BUSINESS ACQUISITION AND ASSET ACQUISTION - TECHNOLOGY

Acquisition – Brightline Interactive, LLC (“BLI”)

On May 25, 2022, Glimpse entered into an Agreement and Plan of Merger (the “Merger Agreement”), with BLI and each of the equity holders of BLI named therein (collectively, the “Members”). BLI is an immersive technology company that provides Spatial Computing, VR and AR based training scenarios and simulations for commercial and government customers. The acquisition significantly expands the Company’s operating and financial scale, introduces new tier 1 customers specifically in the communication, entertainment and government segments, and bolsters the executive management team.

In August 2022, BLI became a wholly-owned subsidiary of Glimpse.

The aggregate consideration to the Members per the Merger Agreement consisted of: (a) $568,046 cash paid (net of working capital adjustments, as defined, of $505,787) at the August 1, 2022 closing (the “Closing”); (b) $1,926,167 of cash paid at the Closing to extinguish BLI’s outstanding debt and pay down other obligations; (c)714,286 shares of the Company’s common stock fair valued at the Closing (which was the day’s closing price discounted for one year sales restriction from Closing); and (d) future purchase price considerations payable to the Members, up to a residual of $24,500,000. The $24,500,000 is based and payable on BLI’s achievement of certain revenue growth milestones at points in time and cumulatively during the three years post-Closing Date, the payment of which shall be made up to $12,000,000 in cash and the remainder in common shares of the Company, priced at the dates of the future potential share issuance subject to a common stock price floor of $7.00 per share, all as defined.

The BLI acquisition’s fair value at Closing was $12,665,357.

The fair value allocation for the purchase price consideration paid at Closing was recorded as follows:

The Company’s fair value estimate of the contingent consideration for the BLI acquisition was determined using a Monte Carlo simulation and other methods which account for the probabilities of various outcomes. The Company’s fair value estimate related to the identified intangible asset of customer relationships was determined using the Multi-Period Excess Earnings Method. This valuation method requires management to project revenues, customer attrition and cash flows for the reporting unit over a multiyear period, as well as determine the weighted average cost of capital to be used as a discount rate. The Company’s fair value estimate related to the identified intangible asset of technology was determined using the Relief from Royalty Method. This valuation method requires management to estimate the royalty rate based on market data for royalty arrangements involving similar technology, the obsolesce rate, and the weighted average cost of capital to be used as a discount rate.

The goodwill recognized in connection with the acquisition is primarily attributable to new markets access and will be deductible for tax purposes.

The results of operations of BLI have been included in the Company’s consolidated financial statements from the date of acquisition. For the years ended June 30, 2024 and 2023, BLI had revenue of $2.78 million and $4.85 million, respectively, and net losses of $2.63 million and $2.14 million, respectively (exclusive of contingent consideration fair value adjustment gains of $1.87 million and $1.11 million, respectively), reported in the consolidated statements of operations.

Asset Acquisition - Technology

In November 2022, the Company entered into a technology assignment agreement with inciteVR (“IVR”), whereby the Company purchased the entire right, title and interest to certain VR/AR technology, as defined, to expand product offerings.

The Company issued 71,430 shares (calculated as defined) of the Company’s common stock, with a fair value (based on the Company’s common stock price at the close of business on the date of the assignment agreement) of approximately $327,000 in full payment of the assignment, with no further consideration obligations thereto. The $327,000 was recorded as intangible assets- technology on the Company’s consolidated balance sheet as of June 30, 2024 and 2023.

Certain IVR owners became employees of Glimpse after the assignment.

NOTE 5. IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS

PulpoAR, LLC (“Pulpo”)

The assets of Pulpo were acquired by the Company in May 2022. Pulpo has not and is not expected to meet any future revenue performance milestones as defined in the asset acquisition agreement. In addition, Pulpo has generated negative cash flows and is expected to continue doing so for the foreseeable future, and its business has become less strategically aligned with the Company’s current focus. As a result, a decision was made by the Company to divest the operations of its wholly owned subsidiary Pulpo.

Accordingly, the fair value of intangible assets, including goodwill, originally recorded at the time of the purchase, were determined to be to be zero. The net assets of $0.90 million (consisting of intangible assets - technology with net book value of $0.52 million and goodwill of $0.38 million) were written-off and were included in goodwill impairment and intangible asset impairment on the consolidated statement of operations for the year ended June 30, 2024.

On December 1, 2023 the Company executed an asset purchase agreement whereby the Pulpo assets, as defined, were transferred to a new independent entity, PulpoAR, Inc., majority owned by the original sellers of Pulpo, in return for a 10% interest in PulpoAR, Inc. and a $1.0 million senior secured note (“Note”). The Company recorded a non cash $1.0 million gain on divestiture, which is included in general and administrative expenses on the consolidated statement of operations.

The Note is due November 30, 2026 and accrues interest at 1% per annum payable at maturity. Early repayment, if any, of the Note is due in the form of royalties on PulpoAR, Inc.’s revenue or if the new entity raises capital, as defined. Glimpse has no board members nor any operational involvement in the new entity. As of June 30, 2024, no revenue royalties and no capital raises have occurred, and no associated Note paydown had been made.

The Company has fully reserved against the Note and accrued interest as collectability is considered remote and accounts for this investment at cost ($0) because the Company does not control or have significant influence over the investment. The Company recorded a $1.0 million loan loss reserve against the Note included in general and administrative expenses on the consolidated statement of operations. This fully offsets the gain on divestiture detailed above.

For the years ended June 30, 2024 and 2023, Pulpo had revenue of $0.07 million and $0.49 million, respectively, and net losses of $0.42 million and $0.87 million, respectively (exclusive of the goodwill and intangible asset impairment write-off in 2024), reported in the consolidated statements of operations.

The divestiture did not have a material impact on the Company’s operations or financial results.

BLI

As part of the BLI acquisition in August 2022, $3.31 million of the fair value purchase price was allocated to intangible assets – customer relationships. This allocation was based on BLI customers as of the acquisition date. At that time, the majority of BLI’s existing customer base had engaged BLI to produce marketing focused product and was concentrated in one significant customer. During the year ended June 30, 2024, BLI commenced on a strategic shift of businesses focus to provide immersive technology solutions software and services that are primarily driven by Spatial Computing, Cloud and Artificial Intelligence aimed towards a different customer base than those existing at the acquisition date. In addition, the one significant customer at acquisition date has been a marginal revenue generator over the second half of fiscal 2024 and is not anticipated to represent material revenue going forward.

Accordingly, at June 30, 2024, it was determined that the BLI intangible assets – customer relationships was fully impaired. This resulted in an intangible asset impairment non-cash expense of approximately $2.04 million on the consolidated statement of operations for the year ended June 30, 2024, representing the unamortized portion of this intangible asset.

S5D

As part of the Company’s annual review of goodwill impairment, it was determined that unfavorable trends in the S5D business indicated goodwill and long-lived assets of this subsidiary were impaired as of June 30, 2023.

The Company purchased S5D in February 2022 for the initial fair value consideration of $15.47 million, of which $12.61 million was attributed to goodwill and $2.82 million was attributed to intangible assets – customer relationships. Actual revenue and financial results since acquisition have significantly underperformed the expectations that were employed to determine fair value at acquisition. Cash flow of the S5D business was negative for the year ended June 30, 2023. This negative cash flow was the result of significant declines or loss in revenue from key customers compared to previous years and occurred notwithstanding cost-cutting efforts to mitigate the negative results. Declining revenue trends indicate the S5D business may not be able to generate positive cash flow for the foreseeable future. Continued weak new order bookings have continued through the issue date of these consolidated financial statements.

Based on the expectations that the S5D business may not be able to produce positive cash flow for the foreseeable future and there is no expected market for selling the S5D business, it was determined that S5D’s long-lived assets and goodwill were fully impaired as of June 30, 2023. This determination, based on undiscounted cash flow projections, resulted in an intangible asset impairment expense of $14.87 million on the consolidated statement of operations for the year ended June 30, 2023, comprised of:

The S5D business continues to operate. For the years ended June 30, 2024 and 2023, S5D had revenue was $1.78 million and $2.73 million, respectively and net losses of $0.31 million and $1.26 million, respectively (exclusive of the intangible asset write off and change in fair value of contingent consideration).

AUGGD

In March 2023, primarily due to a lack of market traction, a decision was made by the Company to cease the operations of its wholly owned subsidiary MotionZone, LLC (dba “AUGGD”) and divest any related assets and potential liabilities. The assets of AUGGD were originally acquired by the Company in August 2021 for a fair value of $0.75 million. Based on future business projections, the assets of AUGGD were not expected to generate any measurable revenue and were deemed worthless with no future benefit. On April 1, 2023 the Company executed an amendment to the asset purchase agreement for the purchase of AUGGD whereby the assets were transferred to a new independent entity, majority owned by the original sellers of AUGGD, in return for a 19.99% interest in said new entity. Glimpse has no board members nor any operational involvement in the new entity.

The Company accounts for this investment at cost ($0) because the Company does not control or have significant influence over the investment. If the new entity achieves certain revenue goals through December 31, 2024, as defined, the majority owners will receive payments not to exceed $0.65 million in the form of Company common stock. The Company considers this occurrence as remote, and no provision is made for it.

Accordingly, the net book value of intangible assets, including goodwill, originally recorded at the time of purchase of AUGGD, were written off during the year ended June 30, 2023. The $0.48 million write off (consisting of customer relationships and technology with net book values of $0.11 million and $0.12 million, respectively, and goodwill of $0.25 million) is recorded as intangible asset impairment on the consolidated statement of operations for the year ended June 30, 2023.

For the year ended June 30, 2023 (which is the cease of operations of AUGGD), AUGGD had revenue was $0.01 million and net loss of $0.33 million (exclusive of the intangible asset impairment write off and change in fair value of contingent consideration), reported in the consolidated statements of operations.

NOTE 6. GOODWILL AND INTANGIBLE ASSETS

The composition of goodwill at June 30, 2024 and 2023 is as follows:

Intangible assets, their respective amortization period, and accumulated amortization at June 30, 2024 and 2023 are as follows:

Intangible asset amortization expense for the years ended June 30, 2024 and 2023 was approximately $1.24 million and $2.05 million, respectively.

Amortization attributable to Pulpo was $0.08 million and $0.30 million for the year ended June 30, 2024 and 2023, respectively.

Amortization attributable to BLI customer relationships was $0.66 million and $0.61 million for the year ended June 30, 2024 and 2023, respectively.

Amortization attributable to S5D and AUGGD was $0.69 million for the year ended June 30, 2023.

Estimated intangible asset amortization expense for the remaining lives are as follows:

NOTE 7. FINANCIAL INSTRUMENTS

Cash and Cash Equivalents

The Company’s money market funds are categorized as Level 1 within the fair value hierarchy. As June 30, 2024 and 2023, the Company’s cash and cash equivalents were as follows:

Contingent Consideration

As of June 30, 2024 and 2023, the Company’s contingent consideration liabilities related to acquisitions are categorized as Level 3 within the fair value hierarchy. Contingent consideration was valued at June 30, 2024 using unobservable inputs, primarily internal revenue forecasts. Contingent consideration was valued at the time of acquisitions and at June 30, 2023 using unobservable inputs and have included using the Monte Carlo simulation model. This model incorporates revenue volatility, internal rate of return, and a risk-free rate. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance, at times, of a third-party valuation specialist.

As of June 30, 2024, the Company’s contingent consideration liabilities current and non-current balances were as follows:

S5D has significantly underperformed revenue expectations that were employed to determine fair value at acquisition. The possibility of achieving any remaining revenue targets to trigger additional consideration is remote and all earned consideration has been paid. Accordingly, there is no future contingent consideration recorded related to the S5D acquisition as of June 30, 2024. The range of potential additional contingent consideration related to S5D in excess of the amounts reflected on the balance sheet at June 30, 2024 iszero to $10.0 million (which is considered remote and no provision is made for it) in the form of Company common stock (with share conversion at a $7.00 per share floor price). The contingent consideration payout period ends January 2025.

Revenue projections for BLI are expected to trigger potential additional gross consideration of $3.0 million payable in cash over the remainder of the contingent consideration payout period, ending in July 2025. The possibility of achieving any remaining revenue targets to trigger additional consideration is remote. Accordingly, contingent consideration remaining for the BLI acquisition at June 30, 2024 is calculated at the present value of the estimated remaining $3.0 million cash discounted at risk-free interest rates from the estimated payment dates. The range of potential additional contingent consideration related to BLI in excess of the amounts reflected on the balance sheet at June 30, 2024 iszero to $15.0 million (which is considered remote and no provision is made for it), of which up to $7.5 million in cash and the remainder in the form of Company common stock (with share conversion at a $7.00 per share floor price).

The change in fair value of contingent consideration for S5D and BLI for the year ended June 30, 2024 was a non-cash gain of approximately $2.35 million and $1.87 million, respectively, included as change in fair value of acquisition contingent consideration in the consolidated statements of operations. This was primarily driven by the decrease in the Company’s common stock price between the measurement dates and reduced revenue projections. In addition, a payment was made to the sellers of S5D for consideration in March 2024 in the form of Company common stock, fair valued at $0.81 million; and a $1.49 million cash payment was made to the sellers of BLI for consideration in May 2024.

The change in fair value of contingent consideration for XR Terra, LLC (“XRT”) for the year ended June 30, 2024 reflects payouts to the sellers of XRT for consideration recorded as of June 30, 2023. These payouts were made in September 2023 and January 2024 in the form of Company common stock, fair valued at $0.17 million. In addition, the change reflects non-cash gains ofzero and approximately $0.08 million, respectively, for the year ended June 30, 2024 included as change in fair value of acquisition contingent consideration in the consolidated statements of operations reflecting a decrease in the Company’s common stock price between the measurement dates. Lastly, the change reflects an accrual for anticipated achievement of an additional revenue threshold though the end of the contingent consideration period September 2024. This is included as change in fair value of acquisition contingent consideration in the consolidated statements of operations for the year ended June 30, 2024, fair valued at $0.04 million and payable in the form of Company common stock (with share conversion at a $7.00 per share floor price). The range of potential additional contingent consideration related to XRT in excess of the amounts reflected on the balance sheet at June 30, 2024 iszero to $0.75 million (which is considered remote and no provision is made for it) payable in the form of Company common stock (with share conversion at a $7.00 per share floor price).

The range of potential contingent consideration related to the previous divestiture of AUGGD assets at June 30, 2024 iszero to $0.40 million (which is considered remote and no provision is made for it) payable in the form of Company common stock (with share conversion at a $7.00 per share floor price). The contingent consideration payout period ends December 2024.

As of June 30, 2023, the Company’s contingent consideration liabilities current and non-current balances were as follows:

A summary of the quantitative significant inputs used to value S5D’s contingent consideration as of June 30, 2023 was: $3.56 per share market price of the Company’s common stock, revenue projections, revenue volatility of 66.6%, weighted average cost of capital discount rate of 15.7% and risk-free rate of 5.1%.

A summary of the quantitative significant inputs used to value BLI’s contingent consideration as of June 30, 2023 was: $3.56 per share market price of the Company’s common stock, revenue projections, revenue volatility of 75.6%, weighted average cost of capital discount rate of 16.4% and risk-free rate of 4.8%.

The change in fair value of contingent consideration for S5D and BLI for the year ended June 30, 2023 was a non-cash gain of approximately $0.17 million and $1.11 million, respectively, included as change in fair value of acquisition contingent consideration in the consolidated statements of operations. This was primarily driven by changes in the Company’s common stock price between the measurement dates and revisions to revenue projections.

The change in fair value of contingent consideration also reflects the first anniversary payout to the sellers of S5D based on the achievement of certain revenue thresholds as defined in the respective purchase agreement. This payout was made in March 2023 in the form of Company common stock with a fair value of $1.36 million at date of issuance. In addition, the S5D Membership Interest Sale agreement was amended in May 2023 to remove the thresholds for releasing $2.0 million of cash escrowed at closing (recorded as Restricted cash on the consolidated balance sheet at the time) and was replaced with an immediate $1.0 million payment from the escrow account to the S5D sellers, along with an immediate issuance of Company common stock fair valued at $1.05 million at date of issuance; simultaneously, the S5D sellers released the remaining $1.0 million in escrow to the Company. These May 2023 payments to the S5D sellers were recorded as consideration paid.

As of June 30, 2023, the Company’s contingent consideration liability related to XR Terra, LLC (“XRT”) is categorized as Level 3 within the fair value hierarchy as it is based on contractual amounts pursuant to the acquisition agreement, of which certain inputs are unobservable. The change in fair value of contingent consideration for XRT for the year ended June 30, 2023 was a non-cash expense of approximately $0.59 million, included as change in fair value of acquisition contingent consideration in the consolidated statements of operations. This reflects the actual and anticipated achievement of certain revenue thresholds as defined in the respective purchase agreement. These amounts were not included in the contingent consideration balance as of June 30, 2022 as the attainment of the revenue thresholds were originally considered remote.

The change in fair value of contingent consideration for AUGGD for the year ended June 30, 2023 reflects the issuance of common stock to the sellers, net of a note repayment (see Notes 9 and 12). The range of potential additional contingent consideration through December 2024 related to the divestiture of AUGGD assets at June 30, 2023 iszero to $0.65 million in the form of Company common stock. The Company considers this occurrence as remote, and no provision is made for it.

The range of potential additional contingent consideration through April 2025 related to the PulpoAR acquisition at June 30, 2023 iszero to $13.0 million ($12.5 million in Company common stock and $0.5 million cash). The Company considers this occurrence as remote, and no provision is made for it.

NOTE 8. DEFERRED COSTS/CONTRACT ASSETS AND DEFERRED REVENUE/CONTRACT LIABILITIES

At June 30, 2024 and 2023, deferred costs/contract assets totaling $170,781 and $158,552, respectively, consists of costs deferred under contracts not completed and recognized at a point in time ($135,057 and $158,552, respectively), and costs in excess of billings under contracts not completed and recognized over time ($35,724 and $0, respectively). At June 30, 2024 and 2023, deferred revenue/contract liabilities, totaling $72,788 and $466,393, respectively, consists of revenue deferred under contracts not completed and recognized at a point in time ($72,788 and $459,510, respectively), and billings in excess of costs under contracts not completed and recognized over time ($0 and $6,883 respectively).

The following table shows the reconciliation of the costs in excess of billings and billings in excess of costs for contracts recognized over time:

NOTE 9. EQUITY

Securities Purchase Agreement (“SPA”)

On September 28, 2023, the Company entered into a SPA with certain institutional investors to sell 1,885,715 shares of common stock for approximately $3.30 million (at $1.75 per share). The Company realized net proceeds (after underwriting, professional fees and listing expenses) of $2.97 million on October 3, 2023.

The SPA shares were issued on October 3, 2023. Simultaneously, the exercise price on warrants to purchase 750,000 shares of common stock originally issued pursuant to a SPA entered into in November 2021 were repriced from $14.63 per share to $1.75 per share.

Common Stock Issued

Common stock issued to satisfy Contingent Acquisition Obligations

During the year ended June 30, 2024, the Company issued approximately 714,000 shares of common stock, with a fair value of approximately $0.81 million, to satisfy a contingent acquisition obligation for the achievement of a certain revenue performance milestone related to the acquisition of S5D. In addition, the Company issued approximately 71,000 shares of common stock, with a fair value of approximately $0.17 million, to satisfy a contingent acquisition obligation for the achievement of revenue performance milestones by XRT.

During the year ended June 30, 2023 the Company issued approximately 577,000 shares of common stock, with a fair value of approximately $2.41 million, to partially satisfy a contingent acquisition obligation related to the purchase of S5D. In addition, the Company issued approximately 107,000 shares of common stock, with a fair value of approximately $0.32 million, to satisfy a contingent acquisition obligation of approximately $0.57 million less the repayment of a secured promissory note of $0.25 million (see Note 12), related to the acquisition of AUGGD. Furthermore, the Company issued approximately 71,000 shares of common stock, valued at $0.33 million, for the achievement of a revenue performance milestone by XR Terra.

Common stock issued to Employees as Compensation

During the year ended June 30, 2024, the Company issued approximately 399,000 shares of common stock to various employees as compensation (including contractual bonus payments upon achievement of defined revenue milestones) and recorded share-based compensation of approximately $0.58 million primarily in sales and marketing expenses on the consolidated statement of operations.

During the year ended June 30, 2023, the Company issued approximately 155,000 shares of common stock to various employees as compensation and recorded share-based compensation of approximately $0.64 million in general and administrative and sales and marketing expenses on the consolidated statement of operations.

Common stock issued to Board of Directors

During the year ended June 30, 2024, the Company issued approximately 258,000 shares of common stock to certain board members in return for canceling 443,000 fully vested stock options, and recorded share-based board compensation of approximately $0.37 million. In addition, the Company issued 75,000 shares of common stock to certain board members as calendar year 2024 compensation and recorded share-based board compensation of approximately $0.11 million. All board compensation is reported in general and administrative expenses on the consolidated statement of operations

Common stock issued for Exercise of Stock Options

During the years ended June 30, 2024 and 2023, the Company issued approximately 9,000 and 42,000 shares of common stock in cash and cashless transactions, respectively, upon exercise of the respective option grants and realized cash proceeds of approximately $0.0 million and $0.07 million, respectively.

Common stock issued to Vendors

During the years ended June 30, 2024 and 2023, the Company issued approximately 44,000 and 2,000 shares of common stock, respectively, to various vendors for services performed and recorded share-based compensation of approximately $0.10 million and $0.01 million, respectively, primarily in sales and marketing expenses on the consolidated statement of operations.

Common stock issued for Business Acquisition and Asset Acquisition - Technology

During the year ended June 30, 2023, the Company issued approximately:714,000 shares of common stock, valued at $2.85 million, as consideration for the acquisition of BLI;71,000 shares of common stock valued at $0.33 million, per the assignment agreement with inciteVR; and 214,000 shares of common stock, valued at $0.73 million, as consideration for the acquisition of Pulpo.

Warrants

In connection with the July 2021 IPO and the November 2021 SPA, the Company issued warrants, which are exercisable into Company common shares on a one-for-one basis, as detailed below. No warrants have been exercised since issuance. The warrants are not publicly traded.

Stock Option issuance to Executives

In February 2023, pursuant to the Equity Incentive Plan, the Company granted certain executive officers 2.32 million stock options as a long-term incentive. The options have an exercise price of $7.00 per share.0.22 million of these options vest ratably over four years (“Initial Options”). The remainder (“Target Options”) vest in fixed amounts based on achieving various revenue or common stock prices within seven years of grant date. Given the Company’s current stock price and revenue, the Company views the achievement of the milestones that would trigger vesting of the Target Options as remote.

Equity Incentive Plan

The Company’s 2016 Equity Incentive Plan (the “Plan”), as amended, has approximately 12.2 million common shares reserved for issuance. As of June 30, 2024, there were approximately 5.4 million shares available for issuance under the Plan. The shares available are after the granting of 2.1 million shares of executive Target Options.

The Company recognizes compensation expense relating to awards ratably over the requisite period, which is generally the vesting period.

Stock options have been recorded at their fair value. The Black-Scholes option-pricing model assumptions used to value the issuance of stock options under the Plan for the specific periods below are noted in the following table:

The weighted average expected term (in years) in the table above excludes the executive Target Options.

In February 2024, the Company offered current domestic employees the ability to cancel vested and non-vested stock options in return for a lesser amount of newly granted stock options at lower exercise prices and a new three-year vesting schedule. Pursuant to this offer, the Company cancelled approximately 828,000 employee options in February 2024 and granted approximately 578,000 new options to employees in March 2024. In addition, this offer was completed for a board member and approximately 31,000 vested options were cancelled and approximately 21,000 new options were granted. Also, in February 2024,250,000 primarily non-vested options granted to an executive were cancelled and 250,000 new options were granted in March 2024 at a lower exercise price and a new vesting schedule of approximately four years.

The grant date fair value for options granted during the years ended June 30, 2024 (including the new grants detailed above) and 2023 (excluding executive Target Options), was approximately $1.53 million and $6.40 million, respectively. Fair value of the executive Target Options granted in 2023 was approximately $8.53 million.

The following is a summary of the Company’s stock option activity for the year ended June 30, 2024 and 2023, excluding the executive Target Options:

The above table excludes executive Target Options:2,100,000 granted, $7.00 exercise price,8.6 remaining term in years, no intrinsic value. Vesting of these is considered remote.

The above table excludes executive Target Options:2,100,000 granted, $7.00 exercise price,9.7 remaining term in years, no intrinsic value. Vesting of these is considered remote.

The intrinsic value of stock options at June 30, 2024 and 2023 was computed using a fair market value of the common stock of $1.02 per share and $3.56 per share, respectively.

The Company’s stock option-based expense for the years ended June 30, 2024 and 2023 consisted of the following:

There is no expense included for the executive officers’ Target Options.

At June 30, 2024 total unrecognized compensation expense to employees, board members and vendors related to stock options was approximately $2.67 million (excluding executive Target Options of $8.53 million) and is expected to be recognized over a weighted average period of 2.06 years (which excludes the executive Target Options).

NOTE 10. EARNINGS PER SHARE

The following table presents the computation of basic and diluted net loss per common share:

Potentially dilutive securities, on a weighted average basis, that were not included in the calculation of diluted net loss per share attributable to common stockholders because their effect would be anti-dilutive are as follows (in common equivalent shares):

Stock options include 2,100,000 executive Target Options at June 30, 2024 and 2023, respectively.

NOTE 11. PROVISION FOR INCOME TAXES

The components of loss before provision for income taxes for the years ended June 30, 2024 and 2023 were as follows:

The Company recorded provision for foreign income taxes for the years ended June 30, 2024 and 2023 consists of the following:

There wasno current or deferred income tax provision for the years ended June 30, 2024 and 2023.

The reconciliation of taxes at the U.S. federal statutory rate to our provision for income taxes for the two years ended June 30, 2024 and 2023 were as follows:

The Company had deferred tax assets as of June 30, 2024 and 2023 as follows:

The Company has established a valuation allowance against the net U.S. deferred tax assets due to uncertainty regarding the ability to utilize these deferred tax assets in the future. At June 30, 2024, the Company had aggregate net operating loss carryforwards (“NOLs”) of approximately $85.05 million. Federal NOLs for the periods ending June 30, 2018 and prior ($2.88 million) begin to expire in 2037. Federal NOLs for the years ending June 30, 2019 through 2024 ($35.56 million) have no expiration. State NOLs for California and Virginia at June 30, 2024 of $24.19 million begin to expire in 2029. New York state NOLs at June 30, 2024 of $22.42 million have no expiration date

Section 382 of the U.S. Internal Revenue Code imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone significant changes in stock ownership. The Company has not completed a Section 382 analysis of stock ownership and its effect upon federal and state NOL carryforwards. Consequently, the Company’s NOL carryforwards may be subject to annual limitations under Section 382.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and taxing strategies in making this assessment. As a result of the uncertainty in the realization of the Company’s deferred tax assets, the Company has provided a valuation allowance for the full amount of the deferred tax assets at June 30, 2024 and June 30, 2023.

The Company’s valuation allowance during the years ended June 30, 2024 and 2023 increased by approximately $1.14 million and $9.43 million, respectively.

Upon completion of its 2023 (for fiscal year ending June 30, 2024) U.S. income tax return, the Company may identify additional remeasurement adjustments. The Company will continue to assess its provision for income taxes as future guidance is issued, but does not currently anticipate significant revisions will be necessary.

Uncertain Tax Positions

The following table summarizes the activity related to unrecognized tax benefits for the years ended June 30, 2024 and 2023:

At June 30, 2024 and 2023, the total amount of unrecognized tax benefits of $38,588 and $0, respectively, if recognized for respective periods would favorably impact the Company’s effective tax rate. The Company does not expect a significant change in the total amount of unrecognized tax benefits within the next twelve months.

No interest and penalties were incurred or accrued for the years ended June 30, 2024 and 2023.

The Company files U.S., state and foreign tax returns with varying statutes of limitations. No examinations by U.S., state or foreign authorities are currently under way.

NOTE 12. RELATED PARTY TRANSACTIONS

Augmented Reality Investments Pty Ltd (“ARI”)

In March 2022, the Company lent to ARI, the entity from which the assets of AUGGD (see Notes 5) were bought, $0.25 million pursuant to a secured promissory note due March 31, 2024. The two owners of ARI were at the time the note was issued a then employee and non-employee advisor to the Company.

The note bore interest at the rate of 1% per annum and was secured by the borrower’s common shares of the Company. Any sales of said shares were to be used to prepay the note, unless otherwise agreed to by the Company.

The note and any accrued interest were extinguished in July 2022 (see Note 9).

NOTE 13. COMMITMENTS AND CONTINGENCIES

Lease Costs

The Company made cash payments for all operating leases for the years ended June 30, 2024 and 2023, of approximately $0.58 million and $0.60 million, respectively, which were included in cash flows from operating activities within the consolidated statements of cash flows. As of June 30, 2024, the Company’s operating leases have a weighted average remaining lease term of 1.13 years and weighted average discount rate of 8.43%.

The total rent expense for all operating leases for the years ended June 30, 2024 and 2023, was approximately $0.46 million and $0.54 million, respectively, with short-term leases making up an immaterial portion of such expenses.

Lease Commitments

The Company has various operating leases for its offices. These existing leases have remaining lease terms ranging from approximately 1 to 3 years. Certain lease agreements contain options to renew, with renewal terms that generally extend the lease terms by 1 to 3 years for each option. The Company determined that none of its current leases are reasonably certain to renew.

Future approximate undiscounted lease payments for the Company’s operating lease liabilities and a reconciliation of these payments to its operating lease liabilities at June 30, 2024 are as follows:

Contingent Consideration for Acquisitions

Contingent consideration for acquisitions, consists of the following as of June 30, 2024 and, 2023 respectively (see Note 6):

Employee Bonus

During this fiscal year, a certain employee met the revenue threshold to earn a bonus payout and this was included in accrued non cash performance bonus in the consolidated balance sheet at June 30, 2023. This bonus was paid in February 2024 entirely in the form of Company common stock with a fair value of approximately $0.36 million. For the years ended June 30, 2024 and June 30, 2023, the fair value of this potential bonus decreased approximately zero and $0.55 million, respectively, due to a decrease in the Company’s common stock price between the measurement dates. This gain is included in sales and marketing expenses on the consolidated statement of operations.

Potential Future Distributions Upon Divestiture or Sale

In some instances, upon a divestiture or sale of a subsidiary company or capital raise into subsidiary company, the Company is contractually obligated to distribute a portion of the net proceeds or capital raise to the senior management team of the divested subsidiary company.

NOTE 14. SUBSEQUENT EVENTS

On September 3, 2024, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, because the closing bid price for the Company’s common stock listed on Nasdaq was below $1.00 for the prior 30 consecutive business days, the Company no longer meets the minimum bid price requirement for continued listing on the Nasdaq Capital Market. In accordance with Nasdaq Marketplace rules, the Company has a period of 180 calendar days from September 3, 2024, or until March 3, 2025, to regain compliance with the Minimum Bid Price Requirement. If at any time before March 3, 2025, the bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that the Company has achieved compliance with the Minimum Bid Price Requirement.

The Company’s receipt of the notification letter has no immediate effect on the listing of the Company’s shares, which will continue to trade uninterrupted on Nasdaq under the ticker “VRAR”. In addition, it does not affect the Company’s business, operations or reporting requirements with the Securities and Exchange Commission. In order to regain compliance with the Minimum Bid Price Requirements, the Company and its Board of Directors are reviewing various potential measures. The Company is not considering a reverse stock split at this time.